The word annuity in and of itself is an enigma.

What is an annuity? In its purest form, an annuity is a contract between an individual and an insurance company spelling out contractual obligations, benefits, and restrictions.

Does an annuity make sense for you, and should you investigate owning an annuity?

There are numerous reasons for owning an annuity, but the most often considered reason is using an annuity for income. Annuities possess an excellent feature; an annuity will guarantee income for as long as a person wants, even for an entire lifetime. If you are considering exploring an annuity and are interested in getting an annuity quote, here are a few simple rules.

Annuities come in two basic flavors: those sold as securities and those sold as insurance.

• Annuities contain guarantees.
• Guarantees can be anything from an interest rate to a named beneficiary.
• Annuities sold as securities contain fees, expenses, and charges; annuities sold as insurance do not.
• Annuities sold as securities can offer both the highest rate of return as well as exposure to risk or loss.
• Annuities sold as insurance will not return the highest interest rate, but the funds in the account are protected from loss.

Another vital concern before buying an annuity is the insurance company's financial strength. Several reliable insurance rating services assign financial strength to the issuing insurance company. It’s something you want to consult when you get an annuity quote.

The ratings assigned to the insurance company help the investor understand the financial strength of the individual insurance company. These rating services are AM Best and Company, Standard and Poor’s, Fitch, and Weiss Research. Most rating services use an A to E numerical scale with an A rating as a financially more robust rate than an E rating.

Talk to an annuity advisor to explain the rating systems in depth when you get an annuity quote.

Ratings are important and financial stability should be considered part of your decision to invest in an annuity. However, other factors are to be considered, such as the type of annuity you are considering and the annuity benefits.

Annuities can be for immediate income and longer-term savings. Annuities held for use at a later date have a desirable feature; interest accumulated in an annuity is not taxed until it is touched.

No taxation until touched means your funds grow tax-deferred until a later date. Deferring the tax until the funds are needed allows you to earn interest on your deposit and earn interest on the tax you would have paid. By deferring for an extended period, your funds will accumulate faster.

When you get an annuity quote, know in which type of annuity you are interested.

The primary things to consider when obtaining an annuity quote are:

• The independent rating service assigns the financial stability score for the insurance company.
• The amount of interest you will earn on your annuity.
• The reason for the annuity and what is the actual benefit desired. 

Variable Annuity: If you consider an annuity issued as a security, the salesperson will supply a prospectus. In the prospectus is all-important issues of the annuity. The prospectus includes charges, expenses, time surrender periods, and investment options.

There are several things to ask the broker when considering getting a quote on a Variable Annuity.

• What is the contractual period of the variable annuity (in years)?
• What are the mortality and expense of annual fees?
• Does the contract charge to manage your money, and if so, what are the fees?
• Does the variable annuity contain any additional riders, and if so, what are the fees?
• Does the variable annuity allow for investment in a fixed interest rate, and if so, what the interest rates are?
• Can the variable annuity be used as a pension income, and if so, are there charges for setting the pension up?

Investigating buying an annuity can be like buying a car --it can be bewildering. Consider all aspects of the annuity and fully understand the benefits and limitations offered. Remember, not all annuities are for everyone; make sure your choice reflects your goals and take your time deciding. A solid advisor will be able to guide you through your options.